April 3 (Bloomberg) -- Russia is raising Ukraine’s natural
gas price 81 percent this month, reaching a level higher than
for any European Union nation and increasing the risk of a “gas
war” affecting shipments to the bloc.

The price will “automatically” jump to $485 per 1,000
cubic meters this month after the government annulled an export-duty exemption for OAO Gazprom in place since 2010, Alexey
Miller, chief executive officer of the Moscow-based exporter,
said today in televised comments. It was the second discount
deal Russia canceled this week.

Ukraine relies on Gazprom for half its gas, while carrying
about 15 percent of Europe’s demand through its pipelines from
Russia, making it a linchpin in the continent’s energy security.
On April 1, Gazprom overturned a discount it awarded to Ukraine
last year after ousted President Viktor Yanukovych pulled out of
a European Union cooperation accord. The new government in Kiev
has since signed political parts of the agreement.

“Ukraine will probably keep paying the price it thinks is
fair, as it has in the past,” Alexander Paraschiy, an analyst
at Concorde Capital in Kiev, said by phone. “After a while,
Gazprom may announce it’s cutting supplies and that will
immediately raise the question of a new gas war and risks to
transit shipments to Europe.”

Gas Disruptions

Gazprom also warned in a statement earlier today that
Ukraine’s gas reserves in underground storage facilities have
dwindled significantly, raising concerns about potential
disruptions in gas transit to Europe. Gazprom has cut sales to
Ukraine more than twice in the past eight years over price
disputes, including a disagreement in 2009 that interrupted
supplies to Europe for about two weeks during freezing weather.

Gazprom’s largest EU customers -- Germany and Italy -- paid
18 percent to 25 percent less than the price Miller announced
for Ukraine today, according to European data reported by the
Interfax newswire this month. Ukraine owes more than $2.2
billion for Russian gas supplies from 2013 through March, Miller
said. The payment deadline for last month’s supplies is April 7.

Ukraine is “ready” to borrow $2 billion dollars from
Russia to pay down its gas debt to Gazprom, Ukraine’s Energy
Minister Yuri Prodan told reporters today in Kiev. Ukraine wants
to return to the $268.50 it was paying last quarter, he said.

‘Cooperative Relations’

NAK Naftogaz Ukrainy must take immediate steps to repay its
debt or Russia won’t be able to cooperate with Ukraine, Prime
Minster Dmitry Medvedev said during the televised meeting with
Miller.

“We would like to continue cooperation with Russia, but
these relations must be cooperative,” Prodan said. The minster
also called for negotiations on gas transit fees that Russia
pays to Ukraine, and denied that gas storage levels are at a
critically low level.

The EU will send a team to Ukraine to assess the nation’s
gas storage capacity, an EU official told reporters yesterday.
Ukraine has used stored gas over the past months to save money,
which means inventories will be reduced this winter, the
official said.

Ukraine, backed by the EU and the U.S., is seeking
alternative gas sources to cut dependence on Russia, the world’s
biggest gas exporter, Prodan said, adding that he plans to meet
with Chevron Corp. and Royal Dutch Shell Plc tomorrow, both of
which have shale gas projects in Ukraine.

Six international traders have shown interest in supplying
gas to Ukraine, and the country may buy gas in Europe for $388
to $400 per 1,000 cubic meters, Prodan said. The country may be
able to import 20 billion cubic meters of gas from Slovakia
using a pipeline “in reverse,” while Ukraine may need to
import about 30 billion cubic meters of gas this year in total,
he said.

Naftogaz has until May 7 to pay for its April supplies from
Russia, giving Ukraine time to complete financing deals with the
International Monetary Fund and talks with Slovakia, which would
ease the pressure, Paraschiy said. “The situation can change,
so a compromise with Russia is still possible.”